Leader Pricing, Odd Pricing, Single Pricing

14th November 2021 0 By indiafreenotes

Psychological pricing is the business practices of setting prices lower than a whole number. The idea behind psychological pricing is that customers will read the slightly lowered price and treat it lower than the price actually is. An example of psychological pricing is an item that is priced Rs. 399 but conveyed by the consumer as Rs. 300 and not Rs. 400 , treating Rs. 399 as a lower price than Rs. 4.00.

Leader Pricing

An adequate system of price setting is fundamental for any independent venture to survive in this competitive world. Adding overall revenues and advertising techniques, pricing policies make a connection among clients and an organization’s accounts. While numerous techniques and innovative strategies for pricing are accessible to retailers, leader pricing, otherwise called loss leader pricing, includes selling things with decreased overall revenue with the expectation that less price will pull in extra clients to a store.

For instance, a product costs 1k in its making and then is sold at a lesser price, i.e., 6k. It is sold at a loss of 1k. This type of pricing is known as leader pricing when a product is sold at a price less than its cost.

Purpose

  • The strategy is mainly targeted to attract customers to the business by using price as a weapon to fight competitors.
  • The prime purpose of loss leader pricing is to gain market penetration and attain a customer base.
  • It is aimed at targeting customers, making them buy their product, spread through a word-of-mouth pattern, retain the customers and eventually sell them other products or complimentary products by keeping a higher profit margin. Thus, what the business is doing is that first selling certain products at zero or negative profit margin and afterward selling some other products at a much higher profit margin to compensate for the initial losses made.
  • This strategy needs to be properly executed as it may lead to the bankruptcy of the business if there is no proper business model or planning.
  • The main purpose of this strategy is to draw more traffic from the competitors and in this way generate more sales.
  • This strategy works best in the way of introducing the customer the cheapest product or services with the hope of building a bigger customer base and generating recurring revenue in the future.

Leader Pricing Types

Different types of businesses use this pricing strategy for different purposes.

  • Some companies use this pricing to clear off their inventory. The lower price creates more demand and hence it becomes easier to sell these products in high volume.
  • Some companies use it to sell a new product. This saves on their marketing cost of acquiring new customers through some other mediums like advertisements.
  • Retailers use this pricing strategy to attract more customers in their shops. But since they don’t want to make loss, they price some other product higher so as to compensate for the loss made by the loss leader priced product. Sometimes it also pays off when the high volume of sales compensates for the loss made by lowering the price.

Odd Pricing

Odd even pricing is extremely common to find these days and is being used widely. Many producers have started using this for a range of products. Some shops that give out discounts to their customers are also using this technique.

The concept is extremely simple to understand. You would have come across several products being priced in the following manner: Rs. 9,999 or Rs. 4449 or Rs. 14,499 or Rs. 99 etc.

Odd-Even pricing technique prices products at an odd number which is slightly less that a rounded off even number. So instead of pricing a product at Rs 1020, you discount it and price it at rs 999. This 21 rs reduction will give much more turnover because people will judge the product being priced at 900 rs and not 1000 rs.

Even pricing is when multiples of 10 are used to price a product. So a small scoop of ice cream will be 30 rs, a larger scoop will be 60 rs and even larger will be 90 rs. This makes the user understand the quantity which he will be getting against the price.

Besides quantity, Even pricing can be used to denote quality. Pricing at 99 or 49 has become so common, that pricing at even values can be a standout from the crowd. However, even pricing is used very seldom and in the combination of Odd Even pricing, odd pricing takes the upper hand.

Some people are of the opinion that this was initially done so that the cashier would be forced to open the change drawer to hand over change to a customer, thus being forced to record a transaction and make it legitimate. However, research on consumer behaviour has shown that this kind of pricing has a psychological effect on the consumer’s mind where he/she, for example, considers a price of Rs. 9,999 to be just above Rs. 9,000 rather than just below Rs. 10,000.

Psychological effect on customers

Odd pricing is believed to have a considerable impact on a customer’s mind. The illusion of much cheaper products compels a buying response. Also it is believed that because consumers are exposed to a continuous flow of prices; they store only the more valuable first digits of a number. This is so because the memory processing time is slower in humans. Odd pricing is also believed to put across the impression that goods are marked at the lowest possible price because it is a belief that even prices is an outcome of the retailer rounding up the price to a whole number. Odd prices for the same reason even give an impression of honesty of a retailer.

Single Pricing

Single price policy refers to the offering of all goods at a single price (e.g., everything for Rs. 500, or Rs. 1000, etc.).

The single price method is the trading method where orders are send to the ISE Stock Market Trading System without any matching for a certain period of time and at the end of that period, a price level is calculated which enables to execute the maximum amount of transactions, and all the transactions are executed over that price level.

Stages of the Single Price Method:

The single price method is basically comprised of two stages:

Order Collection: During this time period, orders are send to the System, and ranked according to price and time priority rules. There is no matching. In this process, the order book and depth information are not displayed.

Price Determination and Execution of Transactions: During this stage which starts immediately after the order collection stage, the orders sent to the system are evaluated, whereupon a price at which maximum quantity of transactions can be performed is determined, and orders which are eligible in terms of price and time priorities are converted to a transaction over that single price level provided that they have sufficient amount of counter orders. At this stage, all market inquiries are available in the electronic trading system.

Orders which remain unexecuted at the opening stage of the single price determination processes within the same session are carried to the next single price process. If a daily order is placed, the remaining orders may be carried from the first session to the second session.